Excluding the impact of the $6.7 million inventory write-down in the current year quarter, gross margin as a percentage of net sales was 27.9 percent, compared to 32.3 percent in the second quarter of fiscal 2012. Accessories segment gross margin, excluding the impact of the inventory write-down, was 31.8 percent, compared to 33.8 percent in the comparable prior year period. This decline was due to lower sales of previously written-down inventory and higher sales concessions to introduce new products. Gifts segment gross margin, excluding the impact of the inventory write-down, was 24.9 percent, compared to 30.8 percent in the comparable prior year period. This decline was due to higher sales concessions, higher holiday season returns and higher in-bound freight.

"We expect future margins to improve over second quarter fiscal 2013 percentages in both of our segments as a result of several initiatives under way. We are changing freight providers and we are receiving lower rates on same-sized containers. We do not expect to anniversary a $0.6 million investment in retail space which reduced our net sales and gross margins in the accessories segment this period. Finally, our restructuring initiatives are expected to improve gifts segment margins by reducing our exposure to sales concessions and outsourcing our gifts distribution center to reduce both our variable and fixed expenses," said McGeachy. 

Total selling, general and administrative (SG&A) expense for the fiscal 2013 second quarter was 3 percent higher than in the prior year period on higher sales volume. 

For the second quarter, the Company reported a net loss of $5.6 million, or ($0.79) per diluted share, compared to net income of $2.7 million, or $0.39 per diluted share, in the prior year period. Adjusted net income, which excludes certain one-time items such as inventory write-downs, investments in new licenses and severances, was $1.8 million compared to adjusted net income of $3.0 million in the prior year second quarter.